Home Builders Turning into Home Sellers
New construction expected to drop off in 2023 as new inventory mounts, according to a Redfin report.
Homebuilders will take on fewer new projects next year as they focus on getting their existing projects sold, according to a new report from real estate brokerage Redfin.
Twenty-nine percent of U.S. single-family homes for sale in the third quarter were new construction—the highest share of any third quarter on record, according to Redfin.
That a good tick higher than the 25% in Q3 2021 and 18% in Q3 2020.
Kurt Carlton, President and Co-Founder at New Western, tells GlobeSt.com, “With the average existing mortgage below 5% today, homeowners are only selling into this rate environment if they absolutely have to, while builders on the other hand, don’t have the luxury of waiting it out. As a result, we are seeing new construction inventory grow as a percentage of all sales while existing home sales diminish.”
New Construction Always Lags the Broader Market
Chad Gallagher, Co-Founder and Chief Growth Officer, Home365, tells GlobeSt.com that two things are at play.
“First, new construction will always lag the broader market,” Gallagher said. “So, when there is a slow-down in overall sales, new construction will take up a larger share of the marketplace because the new construction sales can’t be slowed down as quickly.
“One thing nobody is talking about, which is new construction properties being built to rent at a much higher rate than ever before.
Secondly, Gallagher said, “there is a massive increase in investors acquiring new construction homes as rentals, which would be included in these numbers. These include both individual buyers and funds that see these properties as safe, long-term investments.”
Builders ‘Giving Away Everything but the Kitchen Sink’
Faith Floyd, a Redfin real estate agent in Houston, said in prepared remarks, “Homebuilders started scores of projects during the pandemic moving frenzy and are now stuck with a bunch of new houses that are hard to sell because mortgage rates have risen to 7%.
“Builders are giving away everything but the kitchen sink to attract bidders. Many are offering to buy down the buyer’s mortgage rate by 1.5 points, and I’ve seen at least one offer a $10,000 check for closing costs, a $3,000 gift card and a free fridge as they [try to recover].”